Today, it is possible that a pharmacy can be penalized for the mixture of patients they serve. Given the exact same contract with a PBM, a pharmacy might be paid less on average than another pharmacy solely based on the mix of plans and products billed to the PBM. These things are entirely out of the control of the pharmacy, but the consequences can have profound impacts on the financial viability of the practice.
Today we must religiously watch our monthly reimbursement trends across all payers to see if things are changing. Let’s look at one PBM’s Plan payments made to two pharmacies in terms of brand name drug reimbursement over the course of several months this year. The biggest differences between these pharmacies are physical locations (patient populations) and the mix of different brand name drugs dispensed to their respective patients.
We first need to level set; in case you do not already understand the complicated relationship between purchase price and contract terms. A PBM’s reimbursement contract rates with the pharmacy terms are typically written in terms of the Average Wholesale Cost (AWP) minus a percentage. The pharmacy purchases at Wholesale Acquisition Cost (WAC), which is about 17% lower than AWP. Furthermore, if a pharmacy is a good customer to its wholesale partner, it may receive additional discounts on brand name drug. As a rule, few pharmacies purchase brand name product much below AWP -21.5% to AWP -22%. This is, essentially, the break-even point on brand drugs for pharmacies.
Another thing to remember when looking at reimbursement based on percentages: higher cost items impact the pharmacy far more than lower cost products. Many generic drugs cost the pharmacy less than a dollar. Brand name medications can cost $500-$2000 and up. Being underwater by a couple of percent in the generic realm sets the pharmacy back a small amount, but in the case of a brand name medication it can easily lose the pharmacy $50-$100 or more. Given that the average profit for prescriptions is typically between $5 and $6, one loss on a brand name medication can erase any profit from 10 or more profitable generic prescriptions.
The graphs below display reimbursement based on discount from AWP. The Y-Axis ranges from AWP -19% all the way down to AWP -27%. Remember that most pharmacies are breaking even at AWP – 21% to 22%, and losing money below that threshold. Look at these two graphs and see if you can spot similarities, trends, and difference between these two pharmacies.
Both pharmacies show a downward trend over the past several months. Pharmacy A (the TOP graph) was seeing an average loss on all brand name drugs billed to these plans in every month except July. Pharmacy B (the BOTTOM graph) was underwater on brand-name medications in every month, and their losses were also significantly worse, dropping well below AWP -27% in three of the six months shown. Their brand reimbursement for these plans was far, far below the break-even reimbursement level of AWP -22%.
So, what is the reason for the difference between the stores? There are three pieces to this puzzle. First, this PBM, like most, has several plans, each with slightly different reimbursement rates. The pharmacy with the worst brand result (B) has some patients taking medications designated as specialty by the PBM. This 3-5% of brand-named product dispensed is being reimbursed at AWP – 27% to AWP-30%, decreasing its overall reimbursement. Second, pharmacy B has a much higher percentage (60% vs 85% of claims) of patients using one specific plan that pays, on average, significantly less than other plans offered by the PBM. Finally, the effective rate being paid across all plans is lower for one pharmacy based on the selection of brand name drugs being dispensed.
Remember, the pharmacy has little control over any of these variables. The only things it can do, faced with this poor reimbursement are (in order off increasing severity or risk):
- Stop stocking and dispensing specific brand medications (especially those designated as specialty).
- Drop individual plans that reimburse poorly.
- Stop stocking all brand medications.
These are all drastic steps: the pharmacy cannot simply refuse to fill products for one plan and fill for others as this would be a violation the contracts. In other words, whatever response the pharmacy has will have to be duplicated for all insurance plans across all PBMs.
Keep in mind that any of these choices will result in the patient having less access to their medications. If there are other pharmacies near either of these pharmacies, impacted patients will likely move all their prescriptions. This could result in the recipient pharmacy, having picked up even more patients with a poor mix of plans and products, to make the same decisions, further propagating the problem.
If the pharmacy is more geographically isolated, for example in a rural area or a city center with few or no other pharmacies, the reduction in accessibility is far more concerning. Patients could be forced to drive significant distances to a pharmacy that would accept their insurance or stock the product(s) they need.
Pharmacies are at a point where significant losses from dispensing brand name drugs are not sustainable. Most pharmacies don’t make enough revenue elsewhere to cover brand name drugs as a significant loss-leader. These hard choices are becoming more and more inevitable.
What is clear is that something must change. Stay tuned and we will discuss an alternative that may be able to allow independent pharmacies to continue to serve their patients while maintaining accessibility to brand name medications. There are no silver bullets, but make your next encounter with the Thriving Pharmacist blog count. Next time we will offer a possible solution.